[1]The U.S. Supreme Court recently weighed in on whether the filing of a proof of claim could give rise to a violation of the Fair Debt Collection Practices Act (FDCPA) if the statute of limitations on the underlying claim had expired.[2] In a 5-3 decision, the Court held that if the creditor had properly provided all relevant information in the proof of claim, it was not false, deceptive or misleading under the FDCPA, interpreting the definition of a “claim” under the Bankruptcy Code as a broader “right to payment” rather than a narrower “enforceable claim.”[3] In doing so, the Court looked to the greater legal sophistication of bankruptcy trustees, who have obligations under the Bankruptcy Code to review and pose objections to claims, and a more streamlined claims-resolution process under the Bankruptcy Code with protections that “minimize the risk to the debtor.”[4]

Given this decision, some creditors may liberalize their calculation of limitations periods in order to maximize the number of proofs of claim they can file.[5] This two-part series is designed as a primer on the relevant issues related to the accurate calculation of the statute of limitations when reviewing filed proofs of claims, with an emphasis on already-defaulted consumer debt, where the chances of a limitations defense are much higher. Part 1 will look at the impact of the underlying cause of action for the debt on the statute of limitations period, as well as the appropriate starting date for limitations. Part 2 will examine choice of law, tolling, renewal and revival considerations.

Cause of Action

A debt can often be asserted under multiple causes of action, many of them with different applicable limitations statutes. Where there is a difference, limitations periods are longer for written contracts than for informal or quasi-contractual debts, such as account stated, open account or book account theories.[6] Mortgages and promissory notes are typically subject to standard breach-of-contract analyses, but credit cards have often been interpreted to be account stated or open accounts, typically due to the unavailability of full documentation for the credit card account.[7] Additionally, some branded credit cards, if usable only in certain stores to buy merchandise, have been interpreted as being subject to the four-year limitations period of the Uniform Commercial Code rather than a longer general limitations period.[8] Finally, some states have shortened the time period for collecting deficiency balances after repossession or foreclosure.[9]

A trustee should look to the basis of the claim filled out by the creditor in section 8 of the proof-of-claim form to determine the basis for the creditor’s claim, as it could have a direct bearing on the appropriate limitations period.[10]

Limitations Start Date

Although many practitioners use the date of last payment as a default limitations start date for revolving credit,[11] there is a body of general case law arguing that the statute of limitations should begin to run from the date the creditor knew or should have known of the contract breach.[12] In a credit card or installment contract context, that would be the first missed due date, the date of acceleration or the date the dealings between the parties cease.[13] However, some states have statutes directly clarifying the appropriate start date to use.[14]

Bankruptcy Rule 3001(c)(3)(A) requires a creditor to disclose certain information with its proof of claim when the debt is for open-ended or revolving credit.[15] It’s important to note that information not required to be disclosed may be directly relevant to the correct limitations period; a trustee may have to request additional documentation from the creditor to determine whether an objection is warranted in close-call situations.[16]

This article will conclude with Part 2 in the next ABI Young & New Members Committee Newsletter and will examine choice of law, tolling, renewal and revival considerations.

This article was originally published in the July 2017 edition of the Young and New Members Committee Newsletter. Participation in ABI's committees is one of the many benefits of becoming a member. Committees provide networking and leadership opportunities. For additional information on how you could become involved in ABI and our Committees please visit membership.abi.org.

[1] The author was prior in-house bankruptcy counsel for Midland Credit Management Inc., a parent company of petitioner in the Midland Funding LLC v. Johnson case cited infra. The opinions expressed in this article are solely the author’s and do not reflect the opinion of Midland Credit Management Inc., Midland Funding LLC, or any affiliate or subsidiary.

[10] Fed. R. Bankr. P. 3001(c)(3)(A) requires a creditor to disclose, among other things, the date of an accountholder’s last transaction, the date of the last payment on the account, and the date on which the account was charged off. It does not require a creditor to disclose the initial default date or the date of acceleration.